Every December, you hear the media pundits talking about a Santa Claus rally. December is typically one of the better months for stocks on average. Just because it’s historically a good month for stocks doesn’t mean its valuable to know that. By using short term events, such as a Santa Claus Rally, it can create bad investing behavior. So, it’s best to chalk all this up to market noise and stay with your investment plan.
You might not hear too much about a Santa Claus Rally this year considering the S&P 500 is down ~12% in December and ~10% year to date. To be fair, I’ll put some context around this. The U.S markets are still right within their average annual performance if you look back 3, 5, and 10 years. Which is how you should view historical returns if you want to have a successful plan.
As for this December, we should really call it the Santa Claus Sale, being that the markets are down over 8% this month, and down about 18% since the highs in mid-September. Talk about a sale!
One of my favorite investing quotes is by hedge fund manager, Mark Yusko. He said, “Investing is the only business I know that when things go on sale, people run out of the store.”
The markets have been very accommodative over the last decade, which makes complete sense because the decade before was one of the worst.
Don’t be fearful about the markets right now. Your portfolio should be built to manage these times of volatility.
For this December, remember to think of it as a Santa Claus Sale. If you really think about it, a Santa Claus Sale is better than a Santa Claus Rally. Why? Lower prices = higher expected returns.